How can you use your mortgage for an extension? Watch a short video about using your existing mortgage to make that extension dream a reality over on my YouTube channel and read below for the full transcript…
Hi, thank you so much for joining The Mortgage Mum today. And today I’m talking about one of my most favourite topics, which is how you can use your mortgage to improve your current home and, or do many other things such as buy other properties with it. But yeah, this is centered around how you can use your current mortgage to make that extension a reality. So if you have a mortgage, the first thing we’re going to need you to look at is how much equity do you have in your existing property. This is only going to be a solution for you if you have equity. And what do I mean by equity? When, I mean, what is the difference between your current mortgage balance, which you should be able to find on a free credit report. If you don’t have any other way of accessing that you can call your existing lender.
Often you’ll have an online login on an app, but otherwise you can sign up to something like check my file* and they will be able to check your credit score for you. It’s that complimentary trial for 30 days at moment, but the details, in the notes. You can get a credit report to get your life balance. And then the value of your property now property value at the moment is changing dramatically. We just had our house studied and I was astounded by what they said. So definitely get an agent round to look at your property and give you an idea of value, because you’ll probably be very, very surprised. And the difference between those two is how much equity you have. Now, just bear in mind though, I’ve said there to get an agent round that mortgage valuation fee goes often lower than a state agent would say your property’s worth because the sale value is a little bit different to remortgage value.
A remortgage value is a bit more conservative. So just bear that in mind. Now, the difference between that is your equity. So if you’ve got, say a hundred thousand pounds worth of equity, and it’s just sitting in your home, then you might want to think about pulling some of that equity out to pay for your extension and actually improve the value of your home. Now, how you can go around. That depends on where you are in your mortgage. Lots of you are tied into an existing rate for another year or two, or sometimes even longer than that. And in which case it’s going to cost you quite a bit of money to come out of that rate early. Now, in that scenario, you have two options. Number one, you can get a further advance. So that is going to exist in lender your existing bank and asking them if you can borrow more money, now this will be in a separate product.
So you’ve got your mortgage here and they will bolt on a separate, smaller mortgage that’s attached. We can do these on your behalf. So a broker can look at this for you. And it’s a separate rate that we’ll have a separate end dates. And that’s just something to bear in mind. Now, if affordability, isn’t working with your existing lender and it might be a good idea to look at a secured loan and a secured loan has a really bad reputation out there, but they’re brilliant solutions. We did our extensions with a secured loan and paid it back. And I’ll explain to you why a secured loan sits behind your mortgage. So you’ve got your mortgage here. And it’s a second charge that sits behind. And what that means is if, if the worst happened and the bank had to sell your house to get their money back because you weren’t making payments, they would get paid first and then the second charge lender would get paid second. And because of that, they charge you a bit higher rates than normal mortgage lenders because they take on additional risk.
But what they’ll also do is actually lend you more money than a typical mortgage lender and a typical mortgage as per my last video, will lend you around four and a half to five times your income. Whereas typical secured loan is more like six to seven times your income, so they can be a great solution. Now for us, we used a secured loan because we were tied into an existing product with our lender. And we knew that the value of our house would really go up because we were going into the loft and adding a bedroom and we were extended the kitchen and we weren’t wrong. The value of the house went up by, I believe, 200,000 pounds, and the extension cost us just shy of 100,000. So we made money overnight. And the reason we did that as a secured loan is that when our mortgage came around, the extension was done, it was paid for, with the secured loan and then we could relish and get the rate that was worthy of the new value of the home. So there was a reason to using a secured loan.
And as long as you get the right advice and you know why you’re using it, they can be a really great solution. If your remortgage is coming up, then even better, because then we can look at the whole market for you and find the lender that’s going to offer you the most money at the most competitive rate. Now I could talk endlessly about why extending your home is such a great thing to do and why it can be the solution instead of moving house, because I’ve wanted to move so many times in the 10 years that we’ve lived here.
But I’m so glad now that we didn’t, because we’ve managed to create exactly what I wanted through clever extensions and made some money too, instead of spending it on stamp duty and still probably wanting the forever home that we all dream of. So we are very passionate about them here at The Mortgage Mum. There’s lots of us that have done this and been on this journey. So do speak to us. If you’re thinking, how do I get an extension? I’m desperate to change my home, let us see if we can help you using your mortgage today. If you want to hear more videos like this, you just need to subscribe or hit the post notifications button on Instagram and save this video on Facebook. And then you can get notified every time we put a new video up, our aim is to give you as much knowledge as possible so that you can be in the driver’s seat and have all the power when it comes to your mortgage and how you can use your mortgage as an instrument to improve your life. Thanks so much for listening.
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